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At Sears, A Great Communicator


As Aylwin B. Lewis addresses a group of Kmart managers at a dinner meeting, the years spent at the Baptist church where his father served as deacon show through. "Our worst stores are dungeons!," bellows the new chief executive of Sears Holdings Corp. () "Well, who wants to work in a dungeon? Who wants to shop in a dungeon? Who wants to walk into an environment that is so dull and lifeless that it is sucking the air out of your body?" At the end of his 25-minute unscripted speech, the managers -- whom he has been implicitly criticizing -- hoot loudly and give him a standing ovation.

It remains to be seen whether Wall Street will demonstrate equal enthusiasm. With his promotion in September to chief exec of the recently merged Kmart Corp. and Sears, Roebuck & Co., Lewis is the right-hand man in billionaire Edward S. "Eddie" Lampert's unprecedented -- many say impossible -- bid to get the 330,000 employees of the two ailing retail icons to think as if they are working "for a $55 billion [sales] startup."

In many ways, Lewis is Lampert's indispensable alter ego. The 43-year-old Lampert (BW -- Nov. 22) spends most of his time at his Greenwich (Conn.) investment partnership, ESL Investments, often patched in via video conference. Lewis, 51, is the leader whose physical presence is felt most at Sears' Chicago area headquarters and its 3,500 U.S. stores. Lampert can seem aloof; Lewis is an engaging orator. The duo share two sides of what most companies would consider one job. At Sears, it is Chairman Lampert who sets strategy. It is CEO Lewis who must remake the retailer's cultures in order to firmly implement Lampert's vision. "I am in the forest, and he is on the 50th floor," says Lewis, who gave BusinessWeek the first in-depth access that he has granted since he joined Kmart as its head a year ago. "It's hard for him to see in the mud." Adds Lampert: "He has demonstrated to me, more than I thought before, what it takes to get people aligned around ideas."

THE BARBARIANS

Lampert created the nation's third-largest retailer through some fancy financial footwork. He gained control of Kmart at a bargain price when it was in bankruptcy, took it public in 2003, and then used its buoyant stock to snap up a struggling Sears. In the wake of the merger and the layoff of 1,500 headquarters employees, some survivors privately refer to Lampert & Co. as "the barbarians," a reference to business classic Barbarians at the Gate. The speculation is that Lampert -- who has no history of building operating businesses -- bought Sears and Kmart as real estate plays and will eventually liquidate the companies.

Lampert says that's not his aim, and that there's bigger upside in turning Sears around. To do so, he is rejecting traditional competitive practices in retailing by placing profits before sales growth -- and not worrying about loss of market share. But with department stores in decline, and with Sears' tired brand having defied the rescue efforts of veteran retail CEOs in the past, the stock market considers a Lampert-led turnaround a long shot: Since climbing to a peak of 163 in July, Sears Holdings' stock price has plunged 27%, to 118.79. "I'm glad people think we can't pull this off," says Lewis. "I absolutely love that fact."

Lewis has gone down improbable paths before. Rowena Lewis, one of two younger siblings, says her brother developed a knack for speaking in Sunday school, where students had to tell Bible stories. After gaining dual degrees in English and business management from the University of Houston, he pursued a Masters in English, intent on becoming a professor. But a job as an assistant manager of a Jack in the Box restaurant changed that. He found that leading his restaurant staff "satisfied my need to teach."

THE COACH APPROACH

For the next 26 years, Lewis stuck with restaurants, climbing the management ranks at Jack in the Box, then YUM! Brands Inc. (), a former PepsiCo Inc. () division. A recruiter and a person close to PepsiCo says executives were divided on Lewis' potential to handle the broader strategic role of CEO at YUM! But as operations head for the company's KFC () and then Pizza Hut () restaurants, he left no doubt about his ability to manage nitty-gritty details. He helped lead turnarounds in both chains, ultimately rising to president of YUM! "He was the best operating guy we had," says YUM! Founding Chairman Andrall Pearson.

One reason for his success was his deep understanding of the business. Former colleagues say he spent at least three days a week visiting restaurants. They also praise his leadership skills. Although Lewis set tough objectives, he developed loyal subordinates by working closely with them to meet targets. This is why, at YUM!, he changed titles such as "district manager" to "district coach" to reinforce management's development role. (Managers at Kmart are now also "coaches.") He was quick at identifying talent so businesses would continue to perform once he moved on -- what Lewis calls making "footprints in concrete."

As one of the most visible African American executives in the U.S., Lewis has held high-profile director posts at Halliburton Co. and Walt Disney Co. Robert A. Iger, who succeeded Disney CEO Michael D. Eisner on Oct. 1, says Lewis is a strong communicator who cuts to the heart of issues. In an interview with Lewis during the Disney board's CEO search, the top internal candidate recalls being caught off guard by the board member's directness. "The first thing he asked was, 'Why do you want this job?"'

If Lampert and Lewis are to succeed with Sears Holdings as a retailer, they know they must radically change its two cultures. Both Sears and Kmart have traditionally been inward-looking instead of focused on the customer. Arthur C. Martinez, a former Sears CEO who led a turnaround in the mid 1990s that fizzled fast, can relate. He admits that he underestimated how difficult the Sears culture was to change. "I would have been harder on the people and harder on the organization," he says on what he would do differently now. Martinez says he should have advocated a "'throw the bums out' sort of thing."

Lewis and his human resources team have started to put the framework for a new culture in place. They're rejiggering work flows to allow store employees to spend less time in back rooms and more time on the floor interacting with customers. Since the merger, Lewis has required all 3,800 Sears headquarters employees to spend a day working in a store (many never had). He practices what he preaches, spending Thursday through Saturday visiting stores. He stays at each one for three hours, probing managers to see whether they know, say, the profit margins for the electronics department and asking what they need to run a store better. He and Lampert want employees throughout the business to be more financially literate. The highest compliment an employee can get is to be called "commercial" -- meaning someone who has a sense of how to make money.

Lewis has identified 500 potential leaders at the company and is bringing them in 40 at a time for a daylong course, "Sowing the Seeds of Our Culture," that he runs. A recent session begins with Lampert on video, saying that he hopes the course will help them "act in a way that is collaborative, that is competitive, that is constructive." Later, Lewis tells them, "Make no mistake, we have to change," so either they "drink the Kool-Aid" or they should leave. It remains to be seen whether Kmart and Sears will ever get religion. As Lampert shores up Sears' balance sheet, the retailers are gaining breathing room. But breathing more life into the chains themselves will be a daunting task.

By Robert Berner in Hoffman Estates, Ill.


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